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With the value of defined-benefit pension plan assets plummeting, a group of benefit-actuarial consulting firms sent a letter on Monday to the Senate Finance Committee asking for an emergency temporary relaxation of Pension Protection Act of 2006 funding rules.

Over the past 120 days or so, the average plan has fallen from a 100 percent funded level to between 70 and 80 percent funded, according to Rick Jones, chief actuary of Hewitt Associates’ retirement and financial management practice and a signatory to the letter.

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That means plan sponsors will be on the hook for big cash contributions to the plans. For the majority whose plans are on a calendar-year basis and less than 92 percent funded, the amount that must be contributed over a seven-year amortization period is based on where the market and interest rates stand at the end of this month.

The letter asks for changes to the PPA to give plan sponsors adequate time “to address the abrupt unprecedented increase to and volatility of funding requirements.” It stresses that “we are not suggesting any form of financial assistance or arguing that full funding of pension plans is not appropriate or expected.”

One requested change is a widening of the range within which plan assets must be valued for companies that use an asset-smoothing valuation methodology. Right now, assets must be valued at no more than 110 percent (and no less than 90 percent) of their present market value.

Say a company chooses to average the assets’ value over a two-year period. If the plan was worth $10 billion at the end of 2007 but is worth only $7 billion at the end of this year, the average value of $8.5 billion must be marked down to $7.7 billion, or 110 percent of market value. That’s an additional $800 million shortfall the company is required to fund.

The letter did not suggest a new threshold, but merely “a widening of the 90 percent to 110 percent corridor.”

Secondly, the letter requested more flexibility in selecting methods for valuing plan assets and the interest rate (the ability to choose a spot rate or a 24-month average, “smoothed” rate) under which liabilities are valued. Under current IRS rules, once a company chooses a method, it is locked into that unless the IRS approves a change.

The PPA reduced employers’ ability to engage in smoothing, or averaging pension assets and liabilities over time. The practice has been blamed for a number of extreme funding shortfalls that have occurred periodically in corporate-sponsored defined-benefit plans over the last decade or so.

The actuarial firms’ letter did not define what they meant by “more flexibility.” Jones, however, told CFO.com: “We’re certainly not advocating a long-term free-for-all in terms of people cherry-picking methods they think are best at a particular moment. But these are extraordinary enough times that we think it makes sense to allow some flexibility in choosing a method that helps today but doesn’t lock you into something long-term.”

Hewitt, meanwhile, issued its own press release in which it outlined severe potential consequences if plan sponsors are not granted relief. “Organizations may be forced to use money earmarked for salaries, growth investments, and other business purposes to fund their pension plans,” Hewitt said. “In the current economic environment, this could lead to an increase in layoffs, bankruptcies, or at the very least, more plan freezes at a time when many employees already face a less secure retirement.”

One is a modification of so-called “transition rules” governing the requirement to fully fund plan shortfalls over a seven-year period. Under those rules, a company must be 92 percent funded by the end of the first year and 94 percent by the end of the second year and reach progressively higher percentages until full funding after year seven. At the same time, there is a remeasurement at the end of each year.

“There is some non-common-sensical application of the transition rules that is becoming apparent with the huge market losses we’ve been experiencing,” Jones said.

Hewitt also called for a suspension of a current rule limiting lump-sum distributions, a very popular option, to one-half of the amount that otherwise would be paid if a plan is less than 80 percent funded.

A Senate bill is pending that would provide other relief for plan sponsors. The consultants’ letter said the passage of that bill would be helpful but would not be enough “to provide the type and scope of relief that many plan sponsors need.”

In addition to Hewitt, the consulting firms that signed the letter included Aon, Watson Wyatt, Mercer, Towers Perrin, Milliman, Buck Consultants, and Segal Company.